Founded in 1990, we have around 30 years of operating history, during which the telecom networks have evolved from 2G to 4G, and 5G transformation is underway. We are a non-exclusive distributor of connectivity products. Connectivity products are devices built with electronics or optoelectronics, sensors and software for network connections, which enable these devices to transmit and receive signal or data. Our customers mainly include communications module manufacturers, leading network system equipment providers, providers of IoT and connectivity solutions and products, and other distributors in the PRC. We principally source and distribute component to our customers. We also provide solution and application support which includes identification of customers' specifications, technical design support, and multiple functions integration and technical analysis and support to our customers throughout their design and production cycle. In general, our customers incorporate the components through design-in with our technical team and procure those components from us to build their communications modules and systems and IoT and network connectivity products. Our suppliers are mainly brand name manufacturers in the telecom and datacom connectivity market. As at the Latest Practicable Date, we were authorised distributor of seven manufacturers, comprising (i) five brand name manufacturers based in the U.S. or Japan, which are leading manufacturers in the respective categories of products they offer, according to the Frost & Sullivan Report; and (ii) two manufacturers based in the PRC which appointed us as their authorised distributor subsequent to the Track Record Period with effect from 1 September 2020 and 1 October 2020, respectively. In addition, we have our own wireless and commercial laser application laboratories in Shenzhen, the main tech hub of the PRC. Our strong in- house design and technical team comprised 33 engineers as at the Latest Practicable Date. We have engaged a Japanese project director to oversee the strategy and development of 5G projects and to lead our wireless application laboratory. We ranked the third in terms of revenue among the service providers in the telecom and datacom connectivity product distribution market in the PRC in 2019, with a market share of approximately 4.4%, according to the Frost & Sullivan Report.
According to the Frost & Sullivan Report, it is the market practice to have distributors as middle men in the industry due to the diversity and complexity of the telecom and datacom connectivity industry. As such, component manufacturers mainly sell components to distributors directly, and to a less extent, sell directly to the communications module manufacturers and network system equipment providers. In addition, distributors with design and technical capabilities, such as our Group, serve to bridge the functionality gap between the upstream component manufacturers and the downstream customers with technical support and value-added services. Therefore, distributors play an important role in the industrial chain.
The end applications of our products can primarily be categorised into: (i) telecom infrastructure; (ii) data centres; (iii) IoT and network connectivity products; and (iv) commercial lasers. Telecom infrastructure refers to building of telecom networks connecting inter cities, intra cities, towns, highways and even links to overseas countries, which utilise wireline and wireless technologies. It is a physical medium through which all internet traffic flows. The end users of telecom infrastructure include telecom carriers. Telecom infrastructure is the basis of all network connectivity products or equipment and is also the backbone of data centres and IoT. A data centre is a repository that houses computing facilities like servers, routers, switches and firewalls, as well as supporting component like backup equipment. It centralises the IT operations and equipment of an organisation. Meanwhile, it stores, manages and disseminates the data. Data centres house the most critical systems of a network which is crucial for the continuity of daily operations. IoT and network connectivity products refer to devices embedded with electronics, software, sensors, and network connectivity, which enable these devices to collect and exchange data.
The scope of our services includes collaborating with our customers to provide: (i) specified sourcing and selection of components; (ii) solution development and product application design; (iii) bridging for the access of technologies between suppliers and customers; (iv) lab testing, design and product verification; (v) supporting for next generation product development; (vi) technical knowhow and talent to achieve customers' design at the optimal performance and reliability levels and satisfaction; and (vii) pre- and post-sales follow-up. The scope of our services offered depends on the specific needs of individual customers.
We procure components mainly directly from manufacturers and to a less extent, their authorised distributors. During the Track Record Period, approximately 88.4%, 90.1%, 89.5% and 93.4% of our total purchases were made directly from manufacturers for the years ended 31 March 2018, 2019 and 2020 and the four months ended 31 July 2020, respectively. Our manufacturer suppliers are mainly brand name manufacturers in the telecom and datacom connectivity market. As at the Latest Practicable Date, we were authorised distributor of seven manufacturers comprising (i) five brand name manufacturers based in the U.S. or Japan, namely Supplier A, Supplier B, Supplier C, Supplier D and Supplier E, all of whom were among our top five suppliers during the Track Record Period; and (ii) two manufacturers based in the PRC which appointed us as their authorised distributor subsequent to the Track Record Period with effect from 1 September 2020 and 1 October 2020, respectively. According to the Frost & Sullivan Report, the five brand name manufacturers based in the U.S. or Japan are leading manufacturers in the respective categories of products they offer, such as one of the global leaders of gallium nitride power devices for base stations, one of the global leaders in wireless analog semiconductors, one of the global leaders of optical and photonic products, one of the leaders in modulator drivers for long-haul and metro, and one of the global leaders for multi-layer ceramic capacitors market and film bulk acoustic resonators and surface acoustic wave devices for radio frequency communications. We have been the authorised distributor for a long time for certain manufacturer suppliers while business relationships are intact. We have been appointed as the authorised distributor by the five brand name manufacturers based in the U.S. or Japan for an average of 19 years and for the longest one, we have been appointed since 1994. To avoid competition among authorised distributors, our major suppliers have distribution channel management measures in place, such as allocating customers among distributors and requiring a distributor to obtain prior approval before commencing business relationship with a new customer. It is a general practice that our customers that have been allocated to us or approved by our major suppliers would source from us for products under the product lines that we are authorised to distribute, but not from other authorised distributors appointed by the same major supplier, in case they need to procure those products. According to the Frost & Sullivan Report, such practice is a market practice in the telecom and datacom connectivity product distribution industry for the manufacturers' distribution channel management purposes. Nonetheless, our customers do not have any legal obligations to comply with such practice as we have not entered into any agreements with our customers which required them to exclusively source the relevant products from us.
In view of our portfolio of component offerings available from various manufacturer suppliers, our involvement in the design stage of our customers' products enables our customers to have access to the latest advanced technologies and components from these manufacturers to achieve optimal performance. In light of our involvement in the design stage, at which we assist our customers in the selection of suitable components, reference design, design review, conducting prototype testing, debugging and performance optimisation, we are able to create demand for components sourced from brand name component manufacturers with whom we are the authorised distributing channel, which not only enables us to proactively secure supply for our customers for their strategic volume production plan, but also benefits our suppliers. As such, we consider ourselves as a channel partner of our manufacturer suppliers in marketing and distributing their products, as well as a service provider of our customers to support their product roadmaps.
We possess strong design and technical capabilities. Our design and technical team comprised 33 engineers as at the Latest Practicable Date, all members of which have completed tertiary education in electronics, optoelectronics or electrical engineering or related disciplines. In addition, 22 of them have over 10 years of experience in the industry, among which 12 of them have over 15 years of experience. Moreover, we have our own wireless and commercial laser application laboratories in Shenzhen, the main tech hub of the PRC, where we can conduct reference designs, manufacture demo board, device test and troubleshooting for our customers. We have engaged a Japanese project director, who has expertise in the microwave technology and previously served at one of our Japanese suppliers renowned for compound semiconductor products and was in charge of all microwave devices development, to oversee the strategy and development of our 5G projects and to lead our wireless application laboratory.
During the Track Record Period, we generated a substantial portion of our revenue from sales of goods to our customers. We also generated a small portion of revenue from rendering of services, which mainly represented income derived from providing administrative and support services to customers.
Source: Pangaea Connectivity (01473) Prospectus (IPO Date : 29/01/2021) |